Home > > 24 March 2010 Budget Report > Business taxation
Business taxation
Capital allowances
Business Rates
Close Companies
Time to pay
Consortium Relief
Changes in accounting standards
Share ownership schemes
Employer supported childcare
Sale of lessor companies
Capital distributions
Relief for interest "worldwide cap"
Capital allowances
The Chancellor announced a doubling of the present £50,000 annual investment allowance for expenditure on plant and machinery. The new limit is £100,000 per annum and applies to expenditure incurred on or after 1 April 2010 for companies and 6 April 2010 for businesses subject to income tax. For accounting periods spanning these dates the entitlements will be time apportioned.
Anti avoidance provisions have also been announced to counter any scheme which attempts to claim property loss relief against general income to the extent that the loss is attributable to annual investment allowances. This measure will apply to arrangements entered into on or after 24 March 2010 where tax avoidance arrangements have been implemented.
There are changes to the list of technologies qualifying for enhanced capital allowances on the basis of a requirement for them to be environmentally beneficial. The annual review of the list has resulted in two new sub-technologies being added: permanent magnet synchronous motors and biomass fired warm air heaters. On the other hand compact heat exchangers and liquid pressure amplification will be removed. The criteria for water efficient taps and showers will be tightened. These changes will take effect from the date of the Treasury order following publication of the new lists later this year.
A 100 per cent first year allowance is introduced for new and unused zero-emission goods vehicles. This will be effective for expenditure incurred on or after 1 April 2010 for companies and 6 April 2010 for businesses subject to income tax and will cover a period of five years from those dates.
Business Rates
To provide help with the fixed costs of starting and running a small business, the Government will fund a temporary increase in the level of small business rate relief, so that eligible small businesses occupying properties with rateable values up to £6,000 will pay no business rates for one year from October 2010. Additionally, small businesses benefiting from the rate relief taper (rateable values up to £12,000) will receive significant reductions. It is estimated that over half a million businesses across England will benefit.
Close companies
Under the existing loan relationship rules close companies which make loans to participators have been able to claim a tax allowable expense against corporation tax when such loans are written off or waived, provided they satisfied certain anti avoidance tests. A measure is introduced with effect from 24 March 2010 preventing close companies obtaining a corporation tax deduction in respect of such write offs after this date.
Time to pay
HM Revenue & Customs will continue to offer Time to Pay for all viable businesses having difficulty in meeting their tax obligations.
Consortium relief
The Government announced that it will amend the consortium relief rules so that EU and EEA resident companies engaged in UK consortia will be allowed to pass on the losses of those consortia to their UK resident subsidiaries. In addition, the Government plans to strengthen the rules designed to ensure that consortium relief is given only in proper proportion to the member company's involvement in the consortium.
Changes in accounting standards
As a consequence of the major changes to accounting standards in the pipeline and in particular the anticipated change in International Financial Reporting Standards regarding financial instruments, the Chancellor has paved the way for the necessary changes in the loan relationship rules by putting forward legislation to be incorporated into the Finance Bill 2010 which will allow the corporation tax legislation to be amended by regulations under a statutory instrument. This will enable the necessary changes to be enacted more easily and quickly.
Share ownership schemes
The final changes to the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) rules agreed with the European Commission in order to qualify as approved "State aids" are now being implemented. The changes to VCT rules are that the qualifying shares now need to be traded on any EU regulated market as opposed to the UK official list. Also the existing legislation requires that at least 30 per cent of the VCT's qualifying holdings is represented by eligible shares as defined in ITA section 285(3) and this will be increased to 70 per cent.
For both EIS and VCT legislation will be introduced to exclude companies where they would be treated as an "enterprise in difficulty" as defined by the European Commission's Rescue and Restructuring Guidelines. The requirement for the qualifying trade to be carried out wholly or mainly in the UK will be replaced by a much less onerous condition of having a permanent establishment in the UK. The permanent establishment rule will similarly apply to Enterprise Management Incentive share schemes.
All of the above measures will have effect from the date of Royal Assent to a Finance Act in the next Parliament.
An anti avoidance measure has also been announced to prevent companies obtaining a corporation tax deduction by paying money to share incentive plan (SIP) trustees for them to purchase shares from director-shareholders but with no real benefit accruing to the employees as a result. This measure takes effect for arrangements made on or after 24 March 2010.
There is also a new anti avoidance measure regarding company share option plans (CSOP). HM Revenue & Customs have become aware of so called "geared growth" schemes where employees are able to receive additional rewards over the statutory £30,000 limit. This was achieved by granting options over shares which were in a company controlled by a listed company. The anti avoidance provision takes effect from 24 March 2010 onwards in order to deny CSOP treatment for any shares in a company controlled by a listed company.
Employer supported childcare
Employers providing childcare benefits through salary sacrifice schemes have been excluding employees from the scheme where the salary sacrifice would take the employee below the national minimum wage. Technically this would invalidate the scheme as it would not therefore be open to all employees and thus a chargeable benefit would arise on those employees taking advantage of the scheme. This rule will now be relaxed to permit such situations and the relaxation will be retrospective to the tax year 2005/06 onwards, when the tax free benefit was introduced.
Sale of lessor companies
Draft legislation was published in the 2009 Pre Budget Report which offered companies an alternative treatment to the initial "sale of lessor companies" legislation enacted in Finance Act 2006. The draft legislation has now been discussed with interested parties and a number of refinements have been negotiated that will now be included in the Finance Bill 2010. The changes include the preservation of capital allowance entitlement in some circumstances, dealing fairly with lessor companies which are controlled foreign companies or lease ships into tonnage tax. It will also address a flaw in relation to companies owned by a consortium. The measure initially was brought in 9 December 2009 but the proposed changes will have effect on 24 March 2010.
Capital distributions
There has been uncertainty over the treatment of certain distributions received by UK companies as to whether they were capital or income. The Finance Act 2009 exempted most foreign distributions received by UK companies from corporation tax unless they were capital in nature. However doubts remained about difficult borderline cases. The new legislation will simplify this area by treating all distributions as income unless they have been specifically excluded from income. The legislation will have retrospective effect to the date when the Finance Act 2009 rules took effect.
Relief for interest "worldwide cap"
The worldwide interest cap rules were introduced last year to limit the total UK deduction for interest expense to the total interest paid worldwide. The Treasury announced that changes would be made to the rules following a consultation with business. This has resulted in a number of proposed changes including the treatment of securitisation companies, the transfer of corporation tax liabilities arising from these rules within a group involved in capital market arrangements and other and various other changes affecting the "gateway test", groups controlled by limited liability partnerships and distributions made by industrial and provident societies.
These changes apply to periods of account of the worldwide group beginning on or after 1 January 2010 and will be included in a Finance Bill in the new Parliament.